VCs: Set a trend for moderate pay

By accepting more modest remuneration packages, varsity vicechancellors can send a powerful message to bosses in the corporate and parastatal sectors

Since the inception of our democratic dispensation in 1995 the triple challenges of unemployment, inequality and poverty have worsened considerably. One cause of increasing inequality is the excessive, if not obscene, salaries paid to chief executives in the private sector and state-owned enterprises, as well as at universities.

With the #FeesMustFall campaign and the call for free tertiary education the spotlight will be directed at the excessive salaries paid to university vice-chancellors.

In November 1992, the Mail & Guardian reported that there was no justification for the huge salaries paid to vice-chancellors. Concurrently, the salaries of academic staff have fallen behind and the gap between the highest and lowest paid has widened.

In response, Higher Education South Africa (now called Universities South Africa) appointed Mamphele Ramphele, the former vice-chancellor of the University of Cape Town, to provide a framework to determine vice-chancellors’ remuneration. The study was rejected by Higher Education SA on the grounds that it did not take into account the size, complexity and external revenue of the universities.

Education Minister Naledi Pandor had signalled to the chairs of university councils her intention to provide a policy framework for salaries at universities. In April 2009, she published in the Government Gazette the Policy Framework for the Remuneration of Senior Managers in Public Higher Education Institutions. The purpose was to provide guidelines to councils of higher education institutions to determine remuneration for senior management. For reasons that are not clear, this framework was not adopted.

A 2012 Higher Education SA study found that packages for senior academics compared with the public sector, but were lower for academics at the lecturer and junior lecturer levels, thus making it difficult to attract young graduates into universities. The study found that the salaries of vice-chancellors fluctuated between R1 779 000 and R3 720 000.

Salaries at the upper levels were considerably higher than comparable jobs in the public sector.

In the United Kingdom, vice-chancellors persuaded lecturing staff to accept a pay hike of 1% yet they pocketed increases of 10% or higher. The average salary for vice-chancellors is £254692, with a high of £480000 and a low of £161 000. The average salary of a full-time academic is £47924. Jo Johnson, minister of state for universities and science, said he was shocked to discover a £125000 pay rise awarded to Southampton University’s vice-chancellor; his salary rose from £227000 in 2009-2010 to £350000 in 2015-2016.

Johnson said he was concerned about the vast sums of money spent on pay packets at a time when students were expressing concern about value for money in their degree courses. “I think there are legitimate concerns about how the rate of vicechancellor pay has been growing,” he said. “I would urge the sector to show leadership in this respect.”

He had indicated that fines may be considered for this spiralling increase in vice-chancellors’ salaries beyond £150 000 a year.

Four MPs recently resigned from the Court of Bath University, a statutory body representing stakeholder interests, over the awarding of a salary package of £451 000 a year to its vice-chancellor.

In 2014, the typical college leader in the United States earned $428000, almost 7% more than the year before, according to The Chronicle of Higher Education (2015). The good news is that some university presidents have shown sensitivity to earning large salaries. In 2014, the president of Rutgers University returned his bonus of $90000 and asked the university to use it for undergraduates.

Barclays Group more than doubled the guaranteed pay of its chief executive last year but reduced the variable remuneration to be in line with European regulations; the 2014 package was down to R28.6million from R28.7-million in 2013. Nedbank’s chief executive earned R35-million in 2014.

Research conducted by the High Pay Centre, UK (2014-2015) found that performance measurements used by remuneration committees did not always align with the company’s long-term interests. There is a weak relationship between pay and company performance. To quote the findings of the centre: “For a boring repetitive task, where no intrinsic motivation for doing the job exists, a reward can provide some incentive to work harder or more effectively.”

It states that, for more complex tasks, individuals may possess an intrinsic desire to do the job well. It is this intrinsic desire that motivates individuals to take on the challenging task of accepting chief executive positions or, in the case of universities, to leave the comfort of a full professorship for that of a vice-chancellorship.

The report concludes that modern management remuneration seriously damages the economy. Shareholders receive no benefit from huge increases in pay for senior executives and the high proportion of their total remuneration that comes from options and bonuses.

Sweden’s executives are rewarded far less than peers in the rest of Europe and the US and appear to perform just as well or better for shareholders. In 2007 the average Swedish manager’s pay was 20% lower than their British counterparts. Sweden is ranked among the highest in global competitive surveys. Stockholm’s blue chip index has risen 116% whereas that for Dow Jones was under 70%. The chief executive of Swedbank (one of the Nordic region’s biggest banks) earned $1.1-million in 2011 and is not eligible for a bonus. By contrast, the chief executive of Barclays Bank took home £17-million in 2011. Barclay’s capitalisation is about twice Swedbank’s.

The Gini index measures the extent to which the distribution of income among individuals or households in an economy deviates from equal distribution. Thus a Gini index of 0 represents complete equality, and an index of 100 implies complete inequality. Recent World Bank data show that of the 153 countries surveyed, Denmark has the lowest score of 24.7 and South Africa has a score of 63.14, representing the fourth most unequal country in the world in income distribution. Even Swaziland, Lesotho and Rwanda have lower scores than South Africa.

There is clear evidence from recent research that there no correlation between performance and the payment of exorbitant salaries to chief executives. Anecdotal evidence in South Africa indicates that some of the lower-salaried vice-chancellors are excellent performers.

During the 1990s the salaries of vice-chancellors were equivalent to those of director generals. The highest-paid public servant in the country is the president. His salary stands is R2753689-million, that of ministers is R2 211 937-million, director generals earn R1899771-million, the chief justice gets R2716798, a Constitutional Court judge earns R2173470 and a judge of the high court R1765934. Given these salaries, the question is: What should vice-chancellors earn?

A reasonable proposal is that it should be at the level of a minister or Constitutional Court judge, which is from R2173470 to R2211937. This is about double the salary of professors. But one can argue for an upward adjustment of this salary based on certain contingencies. It is difficult to attract the best students and staff to a rural campus. A larger number of students have to be provided with housing on campus because of the shortage of accommodation. The vicechancellor and his family will have to adjust to living in a rural area, which won’t have the best schools, medical care or shopping malls.

The size of the institution should not be a factor in deciding the vicechancellor’s salary, because larger universities have more resources to appoint additional staff and establish the infrastructure for the efficient management of the institution. An increase of 5% to 10% or so may be justified in exceptional circumstances, with an upper limit.

When a person is appointed to a high-level position such as a vicechancellor, huge effort should be expected from the incumbent because of intrinsic interest in the position, a commitment to transformation and to make a contribution to the development trajectory of a country emerging from racism and inequality — one in which the Gini index remains unacceptably high. Unreasonable and excessive salary packages, including bonuses, should not be a feature of this commitment.

One should not underestimate the stress, long work hours and many problems faced by vice-chancellors. But there is no better place than a university to set a precedent for our students, and no better person than a vice-chancellor to do so. By accepting a reasonable pay package, vicechancellors and senior executives of universities can send a powerful message to the corporate sector and to parastatals about their determination to lower the Gini index and the prevailing high levels of inequality in our country.

Remuneration committees award vice-chancellors these high salaries on the basis that universities are knowledge businesses run along corporate lines, comparable to bankers and other chief executives rather than as institutions serving the public. This undermines the effectiveness of university leaders in providing exceptional ethical and visionary leadership at a time when universities are facing multiple challenges, as Peter Scott, a British educationalist and the former vice-chancellor of Kingston University in the UK, recently said.

If this matter is not attended to expeditiously, there is the risk of government intervention in regulating salaries at universities, a most undesirable development that will compromise institutional autonomy. Alternatively, staff and student unions would bring pressure to bear on the university councils to moderate the exorbitant salaries. The headline and article in the Sunday Times (November 15 2015), “Obscene pay of varsity heads under scrutiny — Some vice-chancellors make more than Zuma”, is a timely warning for councils to act in this regard.

If this matter is not attended to ... there is the risk of government intervention in regulating salaries